Edited version of your written advice

Authorisation Number: 1012782098344

Ruling

Subject: Goods and services tax (GST) and selling agent's commission

Question 1

Are you liable to pay GST to the Australian Taxation Office (ATO) in respect of the commission?

Answer

You are liable to pay GST in respect of the commission unless the vendor is a non-resident who is not in Australia in relation to your supply of selling agent services or the vendor is a resident who is not in Australia in relation to your supply of selling agent services and effective use and enjoyment of those services takes place outside Australia.

Question 2

Are you liable to pay GST in respect of the sale price for a vendor's product or service?

Answer

You are not liable to pay GST in respect of the sale price for a vendor's product or service unless the vendor is a non-resident and the supply of the vendor's product or service is a taxable supply for GST purposes.

You are not liable to pay GST in respect of the sale price if the vendor is not registered or required to be registered for GST.

Relevant facts and circumstances

You are registered for GST.

You are looking to build an online marketplace in the form of a website where individual businesses (vendors) can sell their products and services. Customers can browse and buy the vendor listed products and services. You will charge vendors a commission for facilitating the sale through your PayPal payment gateway, where you collect the payment from the customs, deduct your commission and pass on the remaining amount to the vendor's account.

You are based in Australia.

The vendors may or may not be registered for GST.

You provided a scenario where a customer visits the website, views products and services by various vendors. The customer adds a (number) hour (something) session by X for (amount of money) to the shopping cart and proceeds to the checkout. The customer makes payment to the site owner's (your) PayPal account. PayPal automatically transfers (amount of money) (certain percentage commission) into your account and transfers the (amount of money) (certain percentage) to X's PayPal account.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1)

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 9-40

A New Tax System (Goods and Services Tax) Act 1999 subsection 57-5(1)

A New Tax System (Goods and Services Tax) Act 1999 section 38-190

Reasons for decisions

Question 1

Summary

GST would be payable by you in respect of the commission if your selling agent service is being consumed in Australia, as the commission would be consideration for a taxable supply you make to the vendor under such circumstances.

Detailed reasoning

GST is payable by you on your taxable supplies.

You make a taxable supply where you satisfy the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which states:

You make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an *enterprise that

you *carry on; and

(c) the supply is *connected with Australia; and

(d) you are *registered, or *required to be registered.

However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.

(*Denotes a term defined in the GST Act)

An entity is liable for GST on taxable supplies that it makes.

You meet the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act. This is because:

• you make a supply of selling agent services to vendors for consideration (the commission)

• you make these supplies in the course or furtherance of an enterprise that you carry on

• your supplies of these services are be connected with Australia, and

• you are registered for GST.

There are no provisions of the GST Act under which your supplies of selling agent services are input taxed. Therefore, what remains to be determined is whether your supplies of selling agent services are GST-free.

A supply of a service to a non-resident or other entity that is not in Australia is potentially GST-free under item 2 or 3 in the table in subsection 38-190(1) of the GST Act.

Item 2 provides that a supply of something other than goods or real property is GST-free if the supply is made to a non-resident who is not in Australia when the thing supplied is done, and

(a) the supply is neither a supply of work physically performed on goods situated in Australia when the work is done nor a supply directly connected with real property situated in Australia, or

(b) the non-resident acquires the thing in carrying on the non-resident's enterprise, but is not registered or required to be registered for GST.

Item 3 provides that a supply of something other than goods or real property is GST-free if:

(a) the supply is made to a recipient who is not in Australia when the thing supplied is done; and

(b) the effective use and enjoyment of the supply take place outside Australia;

other than a supply of work physically performed on goods situated in Australia when the thing supplied is done, or a supply directly connected with real property situated in Australia.

If the vendor is a non-resident who is not in Australia in relation to your supply of selling agent services, the commission will be consideration for a GST-free supply of services under item 2.

If the vendor is a resident who is not in Australia in relation to your supply of selling agent services and the effective use and enjoyment of your supply takes place outside Australia, you will make a GST-free supply under item 3.

There are no provisions of the GST Act under which your supply of selling agent's services are GST-free other than item 2 and item 3.

Therefore, GST will be payable by you in respect of your commission if your supply of selling agent services is not GST-free under item 2 or 3 because all of the requirements of section 9-5 of the GST Act would not be met under such circumstances. Under such circumstances, if your commission was (amount of money), you would have a GST liability in respect of that amount of money

GST will not be payable by you in respect of your commission if your supply of selling agent services is GST-free under item 2 or 3.

Goods and Services Tax Ruling GSTR 2004/7 and Goods and Services Tax Ruling GSTR 2007/2 provide guidance on the exemptions at item 2 and item 3. You can find these publications by typing in GSTR 2004/7 and GSTR 2007/2 into an internet search engine.

Question 2

Summary

Generally, you will not be liable to pay GST in respect of the sale price for a vendor's product or service as you are not the supplier of the product or service for GST purposes.

However, there is an exception if the vendor is a non-resident and their supply is taxable for GST purposes.

Detailed reasoning

The GST payable on a supply is generally payable by the supplier.

However, subsection 57-5(1) of the GST Act provides that GST payable on a taxable supply made by a non-resident through a resident agent is payable by the agent and is not payable by the non-resident.

Paragraph 45 of Goods and Services Tax Ruling GSTR 2000/37 discusses supplies made by principals through selling agents. It states:

45. Divisions 57 and 153 apply when a principal makes a relevant transaction (i.e., taxable supply, taxable importation, creditable acquisition or creditable importation) through an agent. The word 'make' and its derivatives, such as 'made', are used in the GST Act, inter alia, to connect the thing being transacted in the course of an entity's enterprise with the paying or receiving of consideration. When an agent is authorised to undertake a transaction on behalf of the principal, thereby binding the principal to the legal effects of the transaction, then the transaction is made by the principal through the agent.

You are authorised to enter into sale transactions on behalf of principals (the vendors), thereby binding these principals to the legal effects of the transactions (that is, the principals are bound to sell their products and services to the customers). Therefore, the vendors, as principals, are making supplies of their products and services through an agent - you. Hence, if GST applies to the sales made to the customers, you are not liable to pay GST to the ATO in respect of these sales, unless subsection 57-5(1) of the GST Act applies.

The principals may have GST liabilities to the ATO on the sales they make through you, depending on the situation (for example, whether the vendors are registered or required to be registered for GST). If a vendor is not registered or required to be registered for GST, neither you nor the vendor will have a GST liability on the vendor's sale of a product or service, because the requirement of paragraph 9-5(d) of the GST Act would not be met.

If the vendor is not registered or required to be registered for GST and the price for the sale of the vendor's product or service is (amount of money), neither you nor the vendor would have a GST liability in respect of the (amount of money) sale price.

Where subsection 57-5(1) of the GST Act does not apply and the price for the sale of a vendor's product or service is (amount of money), you would not have a GST liability in respect of the (amount of money) price for the product or service. However, the vendor may have a GST liability in respect of the (amount of money) price for the product or service.

If a non-resident vendor uses your services, and the sales of the non-resident vendor's products or services are taxable supplies for GST purposes, because the requirements of section 9-5 of the GST Act are met, you will be liable to pay GST in respect of the price for the vendor's products or services because the requirements of subsection 57-5(1) of the GST Act would be met. Under such circumstances if the price for a sale of a vendor's product or service is (amount of money), you would have a GST liability in respect of the (amount of money) price for the product or service.

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